|
Dear Senator
Scutari and Assemblywoman Pou:
The League of
Municipalities and members appreciate the responsibility
you are undertaking as Committee to recommend reforms. The
League and Allied Organizations produced a report entitled
"Correction of Pension Errors (COPE)" in January
of 2006. Attached is a copy of the report and the Executive
Summary.
The League's
report was complimented by a series entitled "Runaway
Pay" produced by The Bergen Record. The Record focused
on public safety officers' and teachers' salaries and shed
light on one of the major problems confronting property
taxpayers. On Monday, the 31st of July, the Department of
Treasury, Divisions of Pensions released pension billings
to local governments for the Police and Fire Retirement
System (PFRS) and the Public Employees Retirement System
(PERS). Said payments are due as of April 1, 2007. The aggregate
amount local employers must budget for normal costs representing
the phase in smoothing as authorized by State legislation
is $650,263,998. In aggregate this number is shocking! When
applied on an individual basis it demonstrates the validity
of the COPE report and the series by The Bergen Record.
The individual cost per member of PFRS is $9,561.90 compared
to $1,089.10 for each PERS member. The pension benefits
local employers must fund for PFRS participants is nine
times greater than the cost of PERS. Such a significant
cost differential has resulted from basically three causes.
First, State mandates through legislative enhancements granted
over the objections of the League of Municipalities. Second,
non-salary items such as holidays, clothing allowance sick
time and vacation pay plus other non-salary benefits are
rolled into the pension base as permitted by the Division
of Pensions and the Board of Trustees in spite of the "credible
salaries" definition found in N.J.A.C. 17:4-4.1(a)2vi.
The third major cause is salary arbitration awards as specifically
detailed by the "Runaway Pay" series in The Bergen
Record.
An argument often
presented to defend the cost differential between PFRS and
PERS deals with Social Security benefit. When Social Security
was first established, police officers were not permitted
to be part of the system. Subsequently the federal law has
changed and membership is optional on the part of the employer.
In 1984, the federal law was changed requiring everyone,
police officers as well as PERS members and all working
individuals to participate in the Medicare Part A portion.
The Social Security Tax of 6.2% applied to employee and
employer equally remained optional for PFRS employees. Approximately
½ of the local governments have adopted Social Security
benefits in addition to the rich benefits offered through
PFRS. The average salary based upon the last evaluation
of the system reported $83,000 which means each covered
employer must pay $5,146 on average and the same is paid
by PFRS members. For those communities that do not participate,
this additional cost does not apply to either the employee
or the employer but said cost applies to all employers of
PERS members.
By recognizing
the average cost per PERS employee is $1,089.10 in 2007
does not imply reforms are not necessary. The concept of
salary boosting tracking through part time service must
be changed. The eligibility criteria for membership in PERS
currently has a threshold of $1,500. This amount should
be changed to represent a reasonable salary for one to gain
full time credit. If one works part time, then they should
receive only part time credit for said year rather than
full time credit. This would significantly reduce abuse
and prospectively correct many problems. Full time credit
for full time service, part time credit for part time service
is recommended.
Also, the ability
for salary padding during the final years of employment
must be recognized and corrected. Both the League, its Affiliates
through the COPE report and the Governor's Pension and Benefit
Task Force recognized this abuse.
The League recognizes,
as well as everyone writing on the subject, that demographics
have changed. Just as the Social Security system has raised
the age before one is eligible for retirement benefits,
all State administered systems should prospectively make
such a change.
Investment of
pension assets is a responsibility of the Treasury and the
Council on Investments. To continue the program of permitting
below cost mortgages for PFRS and below interest loans for
TPAF and PERS members should be eliminated.
Early Retirement
Initiatives have proven to be a failure at the State level
and every local level. Government is not constricting. The
granting of incentives to retire early only compounds the
pension funding problem and creates stress on taxpayers.
Early Retirement Initiatives should be eliminated.
The defined benefit
system provided under PERS is fair and adequate when compared
to other systems around the country. But the system should
be recognized for only career employees and the abuse by
the politically well connected and appointed professionals
should be eliminated. A defined contribution system could
be established which would adequately address the needs
and permit elected individuals to plan appropriately and
not tarnish the system designed for career employees. The
League asks the Committee to seriously consider creating
a parallel defined contribution system for other than full
time career employees.
Disability Retirement
requirements for the defined benefit pension system must
be thoroughly examined and recognized that many older workers
are entering the work force. Such employees, after working
ten years, become eligible for a pension replacement ratio
on a disability pension at what would constitute a 25 year
work experience for the normal employee. With increased
longevity as a result of demographics and health care, the
League believes this Task Force should concentrate on clarifying
and correcting the Disability Retirement issue.
Finally, the
League and its Affiliates, the Governor's Task Force on
Health Benefits and Governor Corzine, recognize the moral
obligation to fund the employer's portion of pension costs.
The concept of granting "holidays" as a temporary
gimmick to permit one time reductions in the budget have
resulted in the credit card mentality of only paying the
minimum, thus compounding the overall problem of a growing
and burgeoning principal obligation. The State's obligation
is significantly larger than the local government portion
of PERS, but nonetheless both are significant. The League
recognizes the obligation to correct the funding patterns.
At the same time, we wish to highlight the dilemma created
by granting such enhanced benefits to PFRS which local taxpayers
are forced to pay far in excess of what one could consider
reasonable.
Health Care
Spending
The State of
New Jersey and its political subdivisions are facing a crisis
with regards to health care for active employees and post
retirement benefits. This issue is highlighted by the current
budget which you recently adopted and the fact the State
is paying over two billion dollars for health benefits.
This issue was recognized by the State Health Benefit Task
Force, the League's COPE report and its Affiliates. The
problems is significant and one that will require difficult
decisions. First there must be cost sharing and incentives
to empower customers. Individuals must develop a new paradigm
for healthcare and it begins with personal responsibility.
Judicious planning for larger co-pays, appropriate deductibles
and elimination of dual coverage will prospectively result
in significant savings.
The State Health
Benefit System represents the largest single purchaser of
health care services in the State and 55% of counties and
municipal employers participate in the system. Also 51%
of educational employers participate in the system. The
range and number of options provided by the State Health
Benefit System should be reexamined in order to maximize
purchasing power. The healthcare industry, particularly
the drug, therapy, and diagnosis and treatment techniques
should be subject to market forces as the State Health Benefit
System is a major player in the market. Controlling healthcare
costs will be your most difficult task.
Specific amendments
the League suggest would save local governments, school
boards, community colleges and counties significant revenues
if adopted. For example: Chapter 8 Public Laws of 1996 which
is NJSA52:14-17.28b is known as the premium sharing concept.
It specifically precluded local governments from using collective
bargaining negotiation as a means to develop shared premium
cost by groups. NJSA52:14-17.28 is a hard limitation on
the local governments, county associations, school boards
and community colleges.
The State Health
Benefits Commission through rules and regulations, NJAC17:9-5.4
precludes local governments from negotiating dependent coverage
with employees under the "uniformity" regulation.
Therefore, the local government must offer the same level
of benefits to all collective bargaining groups and employees
on a uniform basis thereby limits collective bargaining
for health benefit plans. This applies to the various plans
offered as an all or nothing as local governments are precluded
from offering selective plans to the various bargaining
groups as a result of the "uniformity" regulation.
NJSA40A:10-17.1
was amended in 2003 to authorize public contracting units
to offer incentive to end duplicate coverage. The legislation
specifically excluded school districts from offering this
incentive not permitting employees to waive duplicate coverage.
The resulting impact is cost have increased.
Currently school
districts and community colleges can not pool health benefit
experience and cost with municipalities to self fund benefits.
By amending NJSA40A:10-36.1, 40A:10-6(d) and NJSA18A:18B1
et seq it would permit the pooling and joining together
of school districts and municipalities to self fund health
benefits and maximize savings.
Implementation
of such recommendations would produce significant cost savings
throughout the state as property tax reform for local governments,
school boards, community colleges and county associations.
Thank you for
your time.
|
